Lenders switch to high mortgage exit costs to seal customers in |
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Tue, 03 May 2005 20:25
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Shopping around for a better mortgage deal and a product switch? In that case, you might really have to think twice, as mortgage switch costs are taking the escalator.
MoneyFacts research revealed that the mortgage exit fees charged by lenders had soared by a colossal 117% during last year, with lenders hiking their switch fees almost by 300% in their bid to check 'rate tarts' from rampantly swapping products.
| Lenders were bearing the brunt of scheming borrowers, especially ‘rate tarts’ who smartly derived the benefits of lucrative and inexpensive offers, but once those offers ended, they promptly changed their lender for a better discounted deal. Darren Cook, Moneyfacts head of mortgages, added that lenders were unable to make profits because of rate tarts, and said, “Lenders say they need a borrower to stay with them for seven years before they make money on the loan so if people are leaving after two years they will obviously struggle. The mortgage market is so competitive anyway, that lenders have to offer very attractive deals to entice customers in the first place.”
However, lenders are also amidst a storm of criticism for raising the exit fee. Alliance & Leicester, for instance, has been scrutinized for increasing its charges of £195 to £295 for a mortgage switch. Likewise, Nationwide has also joined the band wagon, along with Abbey which is expected to drastically raise its fee from the current £99 to £225 after 11 May. Nevertheless, its erstwhile discharge fee of £89 has been cancelled.
In fact, smaller lenders seem to have recorded the maximum mortgage fee hike, what with Scarborough Building Society raising its penalty from £50 to £150 and Stroud and Swindon Building Society similarly charging a hiked £125 from the previous £35; just as Direct Line is levying £195 now from the past £85.
The rise in the exit penalties is being attributed by lenders to the managerial costs involved in a mortgage closures that consists of costs of redemption statements and deed preparations. Nonetheless, most lenders confessed to have imposed these high prices only to fence-in customers and discourage them from moving elsewhere too early.
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